In its first 30 days in business, startup builder Abrazo Homes in Albuquerque, N.M., operating out of a trailer with no model to show, has sold five houses. Co-founder Brian McCarthy, who launched the company with MacKenzie Bishop, is confident that Abrazo can sell between 25 and 30 homes in 2010. The confidence spills across the border into Mexico, where the partners operate a separate business building and selling tiny prefabricated housing units for low-income buyers.
Abrazo Homes has been acquiring 47 lots in the Sundance Estates subdivision in Albuquerque, where it will build single-family homes ranging from 1,044 to 1,771 square feet and $135,000 to $179,000. Abrazo Homes' low prices reflect a significant reduction in local land costs of which this builder is taking advantage.
McCarthy tells BUILDER that a number of factors led him to believe that the time was right to start his own business. As a division president with Vantage Homes, one of the state’s leading production builders, he was already observing that first-time home buyers, as a demographic, were the first to experience to economic recovery and to make decisions about buying a house.
He's also noticed recently that land prices have been coming down steadily. “A developer I was working with told me he had taken two years of writedowns on lots that were now worth $38,000 each,” McCarthy recalls. At that lot price, McCarthy started figuring out what kind of home a new company could build to match the market’s median household income, which at the time was around $157,000. That calculation determined the price range of Abrazo’s homes, he says.
While at Vantage, McCarthy competed with several production builders that owned land they paid too much for years ago, and were stripping features from their houses to get prices down to saleable levels. He recalls walking through a 4,600-square-foot house selling for $372,000 that had only one telephone jack. So when devising Abrazo’s house plans, “we decided we were going to include certain features as standard,” such as covered patios, appliances, window blinds, and its AbrazoCONNECT package that includes cable, phone, and Internet outlets in every room of the house. “We wanted to make sure that our products wouldn’t be obsolete in five years.”
On its website, Abrazo posts these features as part of its “Do It Right” mission statement, which McCarthy says his company is using as a marketing tool rather than the "disclosure statement” that company websites have become for too many other builders. Broken down into three categories—For Your Homes, For Your Wallet, For Our Customers—"Do It Right" distinguishes Abrazo from competitors by pointing out, for example, that it always discloses the full price of the house on the day of purchase, that it doesn’t use the lowest-bid subs, and that it builds energy-efficient houses. "Do It Right" also spells outy Abrazo’s devotion to providing consistent customer service.
Abrazo’s website is carrying most of the company’s marketing weight, which otherwise has been strictly seat of the pants so far. Sure, the builder has reached out to local real estate agents. But it hasn’t done much advertising beyond updating its information on Craigslist every 24 hours. And every weekend at strategic locations around Albuquerque, it puts up 25 directional signs to lead shoppers to its homesites.
McCarthy and Bishop are financing Abrazo Homes’ operations with their own money and cash from family and friends. As for land purchases and construction costs, McCarthy says “the stars aligned." The partners initially had private equity sources lined up, but the bank underwriting the Sundance subdivision agreed to finance Abrazo’s lot purchases.
“The developer the bank had been working with wasn’t performing at 100%, and by financing our purchase the bank was able to reclassify the lots on its books,” McCarthy explains.
At presstime, Abrazo Homes was in the final stages of securing a land loan of between $2.5 million and $3 million, and a construction line of credit that McCarthy says would have a $1 million balance at any given time.
The company should start construction on its first two models next month.
Both McCarthy and Bishop left Vantage in 2007, and worked for a time for another local builder, RayLee Homes. Before launching Abrazo Homes, they started a separate business, with McCarthy’s cousin Pablo Nava, called PFNC (an acronym for “por fin nuestra casa” which translates as “finally, a home of our own”), which builds spartan workforce housing in Mexico.
McCarthy says that while the average worker along the U.S-Mexico border earns only $2 or $3 a day, houses built there are typically priced far outside of their financial reach. PNFC is targeting those workers as potential buyers by converting corrugated steel shipping containers into housing modules that are dropped onto stem walls on slabs. In Juarez, its 320-square-foot model sold for $8,000. But because of Juarez’ recent economic and social unrest, PNFC shifted to building in Tijuana, where its 480-square-foot module sells for $15,000. Next month, PNFC is scheduled start construction on a $1.5 million, 120-unit project, on which PFNC is also the developer.
Hispanic customers are expected to be an important buyer segment for Abrazo Homes, too. “We feel that, for the foreseeable future, the Hispanic population [in New Mexico] will grow faster than other groups,” says McCarthy. The word “Abrazo” means “hug” in Spanish, and McCarthy is hoping that these customers will embrace the houses and customer-friendly business philosophy he and Bishop are trying to create. Plus, because Abrazo starts with the letter “A,” it pops up among the first builders in any online search. “It’s a unique word,” he says.
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Albuquerque, NM.